The Advertising Implications Of Facebook’s Antitrust Case.

The twin antitrust suits filed against Facebook last week mainly focus on accusations that it abused its dominance in the digital marketplace and engaged in anticompetitive behavior. Yet there are profound implications for the social media giant’s advertising business. Government regulators want to break up what the company calls its “family of apps” by forcing it to sell Instagram and WhatsApp and that would vastly reduce the behemoth’s ad revenues.

According to eMarketer, Instagram will contribute 48% of Facebook’s U.S. revenue this year.

“Facebook has become a powerful player in digital advertising over the years, not only because of the growth of the core Facebook social network but also because of the way Instagram has become intertwined with Facebook's ad buying system," eMarketer principal analyst Debra Aho Williamson said in a statement.

For the first nine months of 2020, Facebook raked in $56.9 billion in ad revenue, with $28 billion generated in the U.S. and Canada, according to Ad Age. That puts Instagram’s take at roughly $14 billion so far this year.

Apart from anticompetitive concerns, Facebook has come under attack for the way it has handled disinformation and hate speech, leading to an advertiser boycott in July. But many clients simply shifted their dollars over to sister company Instagram.

“It is absolutely true that more advertisers are moving to Instagram,” one ad agency executive, who spoke on condition of anonymity, told Ad Age. “Our ad spending has been more skewed to Instagram than it has been to Facebook because a lot of clients either chose to pause their dollars or move them completely off Facebook and focus only on Instagram.”

The case is expected to go deep into the weeds of how the digital advertising ecosystem works and how Facebook treated users, competitors and advertisers.

The complaints claim Facebook hiked the price of its ads, limited choices available to advertisers and didn’t take steps to keep their ads away from unsavory content. “Facebook does not provide advertisers with meaningful ways to ensure that ads are distanced from content that could harm a brand’s reputation,” the complaint said.

The lawsuits also argue that Facebook hasn’t been up front with advertiser about how their campaigns are performing and that brands were unable to audit Facebook’s reporting metrics. “Without accurate information about performance, advertisers cannot accurately assess the value of their ad spend on Facebook’s properties,” the suits state.

Central to the antitrust complaint is that the more than 10 million advertisers Facebook has amassed across its properties simply have nowhere else to go, due to a lack of competition in social media advertising.

Facebook will certainly put up a fight and the case could take years to resolve. Calling the suits “revisionist history,” Jennifer Newstead, VP and General Counsel for Facebook, said millions of businesses choose to use its advertising products. “We compete for advertising dollars with other digital platforms, from Google to TikTok, and with other channels such as television, radio and print,” Newstead said in a blog post. “Businesses choose us because our apps and services deliver real value. Unfortunately, these lawsuits misunderstand the advertising landscape and offer instead a distorted view of how advertisers spend to reach their target audiences.”